Subsidiarity gets a second look

Posted on January 27, 2012 by

Although the centralization of power at the federal level has been the focus of the news lately, there’s been a steady devolving from the state level to the county level because of the need to balance state budgets. A prime example of this is currently ongoing in my home state of Maryland (h/t DA). From Mercatus:

Maryland’s fiscal challenges did not occur over night and, in fact, the state has been running structural deficits for the past several years. The Governor’s recent proposal to balance the state’s budget consists of two major components: (1) having the state share the costs of the teachers’ pension system with county level governments and (2) modifying the state’s tax code…

As the system currently stands, local governments in Maryland determine teacher salaries but the state, however, picks up the entire cost of teacher pensions. The Governor’s proposal would essentially split these costs – the state would continue to pay for a portion of the teachers’ pension costs but county governments would also pick up a portion of the cost.

The second component of the Governor’s proposal consists of modifying the state’s tax code – increasing the tobacco tax, getting rid of tax loopholes in the mining industry, implementing a tax on internet sales, and changing the tax structure for high income earners.

There was howling in our local newspaper about his proposal to cut the real estate tax deduction, as Marylanders see their homes primarily as investments and tax shelters — not as residences, and the generous teacher pensions seem like a true burden on county governments. But it is all a mirage. Here’s the true story behind the rebalancing:

According to the legislature’s Department of Legislative Services, Gov. Martin O’Malley’s cost-sharing plan would force counties and Baltimore city to give up $268.9 million in pension payments they now receive from the state.

If that were the end of the story, county governments would be rightly outraged. Montgomery would lose $53.8 million, Prince George’s, $37.5 million; Frederick County, $11.1 million; Anne Arundel, $23 million, and Baltimore city, $25.3 million.

But O’Malley is offering sweeteners that flip this negative outlook.

Income tax changes on exemptions and deductions for higher wage earners, plus smaller revenue enhancements, will give counties $224.4 million in new money. That would cut the net loss to all 24 subdivisions from O’Malley’s teacher pension/Social Security cost-shifting to $44.5 million.

I wouldn’t really call that austerity, just a bunch of whining. The move would incentivize county governments to lower future wage increases and pension promises (as it would come out of their own budgets), but that’s about it. Considering that the rest of the country is simultaneously making the same move, this shouldn’t hurt our competitiveness or endanger our #1 place in the education tables.